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    Capacity planning involves determining the appropriate level of resources needed to meet demand. Key questions include determining what type of capacity is required, how much is needed to match demand, and when additional capacity is required. Capacity can be measured in various ways such as design capacity, effective capacity, actual output, and efficiency. Strategies for capacity include leading, following, and tracking approaches. When determining capacity, organizations must consider whether to build the capacity internally or purchase it from external providers based on factors like expertise, quality, costs, and risks. Evaluating capacity alternatives involves analyzing fixed costs, variable costs, total costs, total revenue, profits, and cost-volume relationships.

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    Capacity planning involves determining the appropriate level of resources needed to meet demand. Key questions include determining what type of capacity is required, how much is needed to match demand, and when additional capacity is required. Capacity can be measured in various ways such as design capacity, effective capacity, actual output, and efficiency. Strategies for capacity include leading, following, and tracking approaches. When determining capacity, organizations must consider whether to build the capacity internally or purchase it from external providers based on factors like expertise, quality, costs, and risks. Evaluating capacity alternatives involves analyzing fixed costs, variable costs, total costs, total revenue, profits, and cost-volume relationships.

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    2 views11 pages

    CH - 5 Capacity Planning

    Uploaded by

    malaike wajid
    Capacity planning involves determining the appropriate level of resources needed to meet demand. Key questions include determining what type of capacity is required, how much is needed to match demand, and when additional capacity is required. Capacity can be measured in various ways such as design capacity, effective capacity, actual output, and efficiency. Strategies for capacity include leading, following, and tracking approaches. When determining capacity, organizations must consider whether to build the capacity internally or purchase it from external providers based on factors like expertise, quality, costs, and risks. Evaluating capacity alternatives involves analyzing fixed costs, variable costs, total costs, total revenue, profits, and cost-volume relationships.

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    of 11

    Capacity Planning

    • Capacity
    – The upper limit or ceiling on the load that an
    operating unit can handle
    – Capacity needs include
    • Equipment
    • Space
    • Employee skills
    Importance
    • Key questions:
    – What kind of capacity is needed?
    – How much is needed to match demand?
    – When is it needed?
    • Related questions:
    – How much will it cost?
    – What are the potential benefits and risks?
    – Are there sustainability issues?
    – Should capacity be changed all at once, or through several smaller
    changes
    – Can the supply chain handle the necessary changes?
    Measuring Capacity
    • Design capacity
    • Effective capacity
    – Facility design
    – Product mix
    – Process quality
    – Human factors
    – Operational
    – Supply chain
    • Actual output
    – The rate of output actually achieved
    – It cannot exceed effective capacity
    • Efficiency
    actual output
    Efficiency 
    effective capacity

    • Utilization
    actual output
    Utilizatio n 
    design capacity
    Measured as percentages
    Capacity Strategies
    • Leading
    – Build capacity in anticipation of future demand increases
    • Following
    – Build capacity when demand exceeds current capacity
    • Tracking
    – Similar to the following strategy, but adds capacity in relatively small
    increments to keep pace with increasing demand
    Make or buy
    • Factors • Advantages
    – Expertise • Disadvantages
    – Quality
    – Demand fluctuation
    – Cost
    – Risk
    Some more issues
    • Bottleneck operation
    – An operation in a sequence of operations whose
    capacity is lower than that of the other operations
    • Capacity chunks
    • Economies of scale and cost
    – Diseconomies
    Evaluating alternatives
    • Fixed cost
    • Variable cost
    • Total cost
    • Total revenue
    • Profit/loss
    • P = TR –TC = R X Q – (FC + v X Q)
    • P = Q(R-V) – FC
    • =
    Cost-Volume Relationships

    Capacity alternatives may involve step costs, which are


    costs that increase stepwise as potential volume
    increases
    The implication of such a situation is the possible occurrence
    of multiple break-even quantities
    Decision Making under Risk

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